Medhotels’ business practices meant it was acting as a principal despite what its terms and conditions said, a VAT tribunal was told yesterday.

The hearing, which is expected to conclude today, is being held to determine whether the bed bank must pay about £11 million in unpaid VAT under the Tour Operators' Margin Scheme (Toms), a decision which rests on whether Medhotels is adjudged to have acted as a principal, in which case it was liable for Toms.

Medhotels, now owned by Thomas Cook, argues that it was acting as an agent and is appealing a claim for the unpaid tax from HM Revenue & Customs dating back to its time under ownership by Sabre's lastminute.com.

Outlining the argument for Revenue & Customs, Sam Grodzinski told the hearing in London that there were some “fatal” arguments against Medhotels’ claim that it was merely acting as an agent.

Grodzinski argued that Medhotels had decided how much profit to make on a booking and did not disclose this to the hotel, which it would if it had acted as an agency.

He said that in the event of a hotel going bust, Medhotels would not have directed customers straight to the hotel’s receivers but instead fulfilled the booking elsewhere.


“There is no way Medhotels could or would have said to the customer 'sorry, you’ve lost out'. There is a direct contractual obligation with the customer. If Medhotels had been a true agent, it would not have undertaken that obligation.”

Customers were also allowed to change accommodation, which, he said, also illustrated the point, as did Medhotels’ decision to act as an intermediary for complaints, offer compensation and instruct overseas reps to advise clients rather than simply telling the complainant to go direct to the hotelier.

But Alan McLintock, Sabre’s senior taxes director, said much of what was found in the small print was “broadly marketing speak”.

“There is a difference between smoothing things over and accepting liability; a bunch of flowers does not cost very much,” he said.

“The customer could see from the terms and conditions that Medhotels acted as an agent for the hotels.”

However, he admitted that phrases such as “enjoy your holiday with Medhotels” was “slightly imprecise language, perhaps”.



Medhotels also revealed that it made large advance payments to hotels – in some cases more than £200,000 – in order to secure good rates, but McLintock said this did not amount to taking an allocation.

“These are payments made in return for higher commission rates. We do not take inventory risks,” he said.

The tribunal also heard that Medhotels had earned between £200,000 and £250,000 in “cancellation income” which it did not pass on to hotels.



Grodzinski said the strength of the evidence was such it was “impossible to reconcile that with Medhotels simply being the hotel’s booking agent.”

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